Debartolo v. Underwriters at Lloyd's of London

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Debartolo v. Underwriters at Lloyd's of London (2006-027)

2007 VT 31

[Filed 25-Apr-2007]

ENTRY ORDER

2007 VT 31

SUPREME COURT DOCKET NO. 2006-027

OCTOBER TERM, 2006

Desiree Debartolo } APPEALED FROM:
}
v. }
} Rutland Superior Court
}
Underwriters at Lloyd's of London }
} DOCKET NO. 313-5-03 Rdcv

Trial Judge: William D. Cohen

In the above-entitled cause, the Clerk will enter:

¶ 1. Insurer, Lloyd's of London, appeals the superior court's
grant of summary judgment to its insured, Desiree Debartolo. Insurer
argues that the superior court erred: (1) in concluding that the policy it
issued to insured provided coverage for damage to a restaurant property
she owned, and (2) in finding that insured did not deliberately conceal
that she had reopened the restaurant before the loss. We affirm.

¶ 2. The facts, which were largely stipulated below, may be briefly
summarized. Ms. DeBartolo owned a restaurant property in Poultney,
Vermont. She closed the restaurant in the fall of 2000 and let her
commercial insurance lapse. The holder of the mortgage on the property
demanded that Ms. DeBartolo obtain property coverage sufficient to pay the
$92,000 outstanding mortgage debt. Accordingly, in March of 2001, Ms.
DeBartolo applied, through her agent, for a six-month policy with a
property coverage limit of $92,000, enough to cover the balance on the
mortgage. (FN1) Ms. DeBartolo represented, on the application, that the
restaurant was "closed for the season."

¶ 3. Ms. DeBartolo's agent placed the coverage with Lloyd's of
London through one of its United States agents, S&H Underwriters. Lloyd's
is a surplus lines insurer in Vermont, and therefore can issue coverage
only if it is not reasonably available from other sources. 8 V.S.A. §
5024. The agent sent Ms. DeBartolo a copy of the policy, which was
effective March 14, 2001, along with a letter on May 1, 2001. The letter
stated that if Ms. DeBartolo decided to reopen the restaurant, she must
notify the agent so that he could "make the necessary changes regarding the
insurance." Ms. DeBartolo received the letter and the policy before the
loss but did not read either. The policy's Declarations page described the
covered property as a "vacant restaurant" on Route 30 in Poultney. The
policy explicitly provided coverage for property damage resulting from
fire, with several pages of specific exclusions and limitations delineating
risks not covered. No exclusion or limitation stated that the reopening of
the restaurant would void the coverage. The policy also included a vacancy
permit, which provided that the "VACANCY Loss Condition does not apply to
direct physical loss or damage: (1) At the location; and (2) During the
Permit Period; shown in the Schedule or in the Declarations."

¶ 4. Ms. DeBartolo opened the restaurant for business on May 26,
2001. At some point in the preceding days, a plumbing leak soaked a
carpet, which Ms. DeBartolo attempted to dry using a kerosene heater. The
heater caused a fire on May 30, 2001, resulting in damage to the restaurant
exceeding the policy's property coverage limit. Ms. DeBartolo concedes
that the restaurant was not vacant at the time of the loss.

¶ 5. Lloyd's denied coverage for the loss, contending that the
policy provided property coverage only while the restaurant remained
vacant, and asserting that Ms. DeBartolo had intentionally concealed a
known material fact-the reopening-both at the time of the loss and when she
applied for coverage. Ms. DeBartolo commenced a breach-of-contract action
against insurer in 2003, also alleging that insurer's denial of coverage
was made in bad faith. Insurer raised as defenses the same claims it
raised in the denial letter. The parties stipulated to the above-detailed
facts and submitted cross-motions for summary judgment.

¶ 6. The superior court concluded that the policy was ambiguous as
to whether coverage would continue if the restaurant reopened. The court
therefore construed the policy in favor of Ms. DeBartolo, granted her
motion for summary judgment, and ordered Lloyd's to pay the full
property-coverage amount, less the $500 deductible, plus prejudgment
interest and costs. The superior court later issued a supplemental finding
that Ms. DeBartolo had not concealed from Lloyd's that she had reopened the
restaurant. (FN2) This appeal followed.

¶ 7. Lloyd's argues, first, that the trial court erred in granting
summary judgment to Ms. DeBartolo because the policy's plain language
unambiguously limits property coverage to a vacant restaurant. It notes
that the policy's Declarations page describes the covered property as a
vacant restaurant, and contends that this description is material to, and
limits the extent of, property coverage under the policy. DeBartolo
asserts, by contrast, that the policy is at best ambiguous as to whether
property coverage would continue when the restaurant reopened, and should
therefore be construed in favor of finding coverage.

¶ 8. We review a grant of summary judgment de novo, applying the
same standard as the trial court. Town of Lunenburg v. Supervisor & Bd. of
Governors of the Unorganized Towns & Gores of Essex County, 2006 VT 71, ¶
6, ___ Vt. ___, 908 A.2d 424 (mem.). We will affirm a grant of summary
judgment when there are no genuine issues of material fact and the
prevailing party is entitled to judgment as a matter of law. V.R.C.P.
56(c)(3); Zukatis v. Perry, 165 Vt. 298, 300, 682 A.2d 964, 965 (1996). If
both parties seek summary judgment, each must be given the benefit of all
reasonable doubts and inferences when the opposing party's motion is being
evaluated. Toys, Inc. v. F.M. Burlington Co., 155 Vt. 44, 48, 582 A.2d 123, 125 (1990). When no issues of material fact remain, we will conduct a
plenary, nondeferential review of the questions of law presented by the
summary judgment motion. Hardwick Recycling & Salvage, Inc. v. Acadia Ins.
Co., 2004 VT 124, ¶ 14, 177 Vt. 421, 869 A.2d 82.

¶ 9. We interpret insurance policies much like other contracts,
striving to give effect to the intent of the parties as expressed by the
plain language of the instrument. Sanders. v. St. Paul Mercury Ins. Co.,
148 Vt. 496, 500, 536 A.2d 914, 916 (1987). Any ambiguities in insurance
policies are construed in favor of finding coverage. Id. As with other
contracts, the determination of ambiguity is a question of law, and our
review is nondeferential and plenary. Ferrill v. N. Am. Hunting Retriever
Ass'n, 173 Vt. 587, 590, 795 A.2d 1208, 1211 (2002) (mem.). However, an
insurer should "not be deprived of unambiguous provisions placed in a
policy for its benefit." Peerless Ins. Co. v. Wells, 154 Vt. 491, 494, 580 A.2d 485, 487 (1990). Accordingly, we will "enforce the contract as
written and not . . . rewrite it on behalf of one . . . of the parties."
Waters v. Concord Group Ins. Cos., 169 Vt. 534, 536, 725 A.2d 923, 926
(1999) (mem.). It is "appropriate, when inquiring into the existence of
ambiguity, for a court to consider the circumstances surrounding the making
of the agreement." Isbrandtsen v. N. Branch Corp., 150 Vt. 575, 579, 556 A.2d 81, 84 (1988); cf. Official Comment, 9A V.S.A. § 2-202 ("This section
definitely rejects: . . . [t]he premise that the language used [in a
commercial sales contract] has the meaning attributable to such language by
rules of construction existing in the law rather than the meaning which
arises out of the commercial context in which it was used.")

¶ 10. We note at the outset that, while there is copious case law
concerning the interpretation of vacancy provisions in property policies,
neither party has found, and nor have we, any case presenting closely
analogous facts and claims to these. The typical vacancy-provision case
concerns virtually the opposite circumstance from that present here: an
insured property becomes arguably vacant, thereby possibly voiding coverage
by operation of a vacancy provision that explicitly conditions coverage on
the property's remaining occupied. See, e.g., Gas Kwick, Inc. v. United
Pac. Ins. Co., 58 F.3d 1536, 1538 (11th Cir. 1995); Niagara Fire Ins. Co.
v. Everett, 292 F.2d 100, 104 (5th Cir. 1961); Home Mut. Fire Ins. Co. v.
Pierce, 402 S.W.2d 672, 674 (Ark. 1966); Aguiar v. Generali Assicurazioni
Ins. Co., 715 N.E.2d 1046, 1047 (Mass. App. Ct. 1999).

¶ 11. Other superficially analogous cases are those concerning
builder's-risk coverage, which is commonly issued to builders to cover the
risk of property loss during construction, and is often expressly
conditioned on a building's continued vacancy. Builder's-risk-coverage
cases often arise when a building is occupied upon completion, but a claim
is nonetheless made under the builder's-risk coverage. See, e.g., Peerless
Ins. Co. v. Bailey Mortgage Co., 345 F.2d 14, 15-16 (5th Cir. 1965)
(applying Mississippi law); Water St. Dev., Ltd. v. J.W. Corr Agency, Inc.,
539 A.2d 967, 967-68 (R.I. 1988). Here, by contrast, no express provision
voided the property coverage upon the restaurant's reopening. The
builder's-risk cases are therefore inapposite.

¶ 12. Lloyd's cites a number of cases in support of the proposition
that coverage should be limited to the premises described in the
declarations. However, all arose from facts very different from those
present here. In Evergreen National Indemnity Co. v. Tan it All, Inc., 111 S.W.3d 669, 678 (Tex. Ct. App. 2003), a property policy was held not to
cover a theft loss that occurred 100 feet away from the premises described
in the declarations. This is plainly inapposite to the case at bar, where
the disputed loss occurred at the location described in the declarations.
Indeed, if Evergreen has any impact on our analysis, it is to highlight the
usual purpose of the premises description in the declarations: to describe
a location, not to proscribe the use to which the premises are put, a
function served by other policy provisions. In the instant case, for
example, Ms. DeBartolo's CGL coverage was expressly limited, by a policy
provision other than the premises description in the declarations, to
"locations and operations that are described on the Declarations page."
(Emphasis added.) Reading the policy as a whole, the fact that Lloyd's
expressly limited the liability coverage to "operations" described on the
declarations page militates in favor of finding property coverage for the
fire loss at issue here. Had Lloyd's intended also to condition property
coverage on the continued vacancy of the restaurant, the language limiting
the CGL coverage could simply have been extended to limit the property
coverage as well.

¶ 13. Similarly unhelpful to Lloyd's is Ruiz v. State Wide
Insulation & Construction Corp., 703 N.Y.S.2d 257, 258-59 (App. Div. 2000)
(slip op.), in which the declarations page and an endorsement expressly
limited insured operations to "painting," and the appellate court held that
the policy therefore unambiguously excluded coverage for losses resulting
from other operations. Ruiz serves only to highlight the very different
policy language here.

¶ 14. Lloyd's reliance on Pfeiffer v. Grocers Mutual Insurance Co.,
379 A.2d 118 (Pa. Sup. Ct. 1977), is also misplaced. In Pfeiffer, the
insured demolition company sought coverage for damages resulting from its
unauthorized demolition of two structures. Id. at 119. The liability
policy listed seven structures for the demolition of which the policy
provided coverage. Id. The seven listed structures were all on one side
of an existing street, and were to be destroyed in order to clear a right
of way for a new roadway. Id. at 119-20. The two structures whose
demolition gave rise to the claim were not listed in the policy and were
across the street, outside of the right of way. Id. at 120 n.1. In the
instant case, by contrast, Lloyd's disclaims coverage because the described
premises was put to a different use from that mentioned in the
declarations. Pfeiffer offers no support for Lloyd's position.

¶ 15. Lloyd's also cites Wickramasekra v. Associated International
Insurance Co., 890 So. 2d 569 (La. Ct. App. 2003), a case somewhat closer
to the mark. In Wickramasekra, the plaintiff was visiting a friend's
workplace and was injured while helping the friend move palm trees with a
forklift. The plaintiff sued his friend's employer and the employer's CGL
carrier, alleging negligence. The business description on the CGL policy's
declarations page, in conjunction with a "classification limitation"
endorsement, limited coverage to damages resulting from "loading and
unloading of equipment." Id. at 571. The trial judge granted summary
judgment for the insurer, noting that palm trees are not "equipment." Id.
The appellate court affirmed, noting that it was "unable to characterize or
define a palm tree as equipment" and describing the plaintiff's contention
to the contrary as "without merit." Id. at 574.

¶ 16. Lloyd's attempts to bring Wickramasekra into concord with the
instant case by characterizing the property coverage's "Description of
Premises" as having been intended to "identify the premises and business
activity to which the insurance relates." (Emphasis added.) But this
overstates the importance of the premises description and ignores the rest
of the policy, with which it must be construed as part of an integrated
whole. Concord Gen. Mut. Ins. Co. v. Madore, 2005 VT 70, ¶ 12, 178 Vt.
281, 882 A.2d 1152. Here, the policy provided property coverage "for
direct physical loss of or damage to Covered Property at the premises
described in the Declarations." This language undercuts Lloyd's claim that
the premises description was intended to limit anything more than the
physical location covered. Further, as noted supra, ¶ 12, Lloyd's did
expressly limit CGL coverage to "locations and operations" described in the
declarations, but did not similarly limit the property coverage. We
therefore decline to follow Lloyd's narrow reading of the property-coverage
premises description, which would render the policy's express limitation on
CGL coverage mere surplusage. See Vt. State Colls. Staff Fed'n v. Vt.
State Colls., 157 Vt. 645, 646, 596 A.2d 355, 357 (1991) (mem.) ("In
construing [a] contract, we must give effect to every material part, if
possible.").

¶ 17. The vacancy permit in the property policy also supports a
finding of property coverage for the fire loss. The typical vacancy permit
voids the vacancy loss condition-also sometimes known as an occupancy
clause-in a property policy. A vacancy loss condition, when not voided by
a vacancy permit, suspends property coverage when the subject property is
unoccupied for a specified period. "The purpose of an occupancy clause is
to avoid liability where the risk has been increased by vacancy." 6A L.
Russ & T. Segalla, Couch on Insurance § 94:102, at 94-111 (3d ed. 2000).
The vacancy permit in this case provided that the "Vacancy Loss Condition
does not apply to direct physical loss or damage: (1) At the location; and
(2) During the Permit Period; shown in the Schedule or in the
Declarations." The vacancy permit simply allowed, but did not mandate,
vacancy.

¶ 18. Lloyd's also makes much of the fact that it is a surplus lines
insurer in Vermont, and is therefore authorized to write policies only when
"the full amount of insurance required is not reasonably procurable from
admitted insurers." 8 V.S.A § 5024(a). (FN3) Lloyd's asserts, in essence,
that it would not, as a surplus lines insurer, have been allowed to issue a
policy to a restaurant that would reopen at any time during the policy
period. We disagree.

¶ 19. Even assuming, arguendo, that Lloyd's is correct that it
could not have issued this policy to a restaurant that was open at the time
of the application because such coverage would have been readily available
from Vermont insurers, we part ways with Lloyd's when it construes the
policy to avoid coverage as soon as the restaurant reopened. Surplus lines
coverage would not only have been available to a permanently vacant
restaurant, but also to one that was vacant when the policy was purchased
but would reopen during the policy period; the latter coverage would not
have been any more "reasonably procurable" from admitted insurers than the
former. Id. Lloyd's status as a surplus lines insurer does not militate
strongly, if at all, in favor of construing this policy against Ms.
Debartolo.

¶ 20. Further, Lloyd's claim that the property coverage would be
void upon the restaurant's occupancy is belied by its letter to insured, in
which Lloyd's agent requested that Ms. DeBartolo notify insurer when the
restaurant reopened so that insurer "could make the necessary changes
regarding the insurance." This language is not sufficient to impose an
obligation on insured to notify insurer prior to the restaurant's reopening
in order to retain property coverage. See Patrons Mut. Ins. Co. v.
Rideout, 411 A.2d 673, 678 (Me. 1980) ("Absent a special agreement, the
insured who makes particular representations in the application for
insurance is not obligated to inform the insurer of changes in
circumstances occurring after issuance of the policy which are inconsistent
with the representations in the application."); 6 Couch on Insurance §
84:9, at 84-15 ("[I]t is unreasonable to impose on the insured a continuing
duty to notify the insurer of any change which would materially affect . .
. the continuation of the risk."). The language of the letter is not the
sort of explicit "special agreement" the Rideout court contemplated.

¶ 21. In sum, the premises description in the instant case, the
policy's explicit exclusion of several causes of loss other than opening
the restaurant, the policy's explicit limitation of CGL coverage to
operations described in the declarations, and the vacancy permit all
support the superior court's grant of summary judgment. The policy, read
as a whole, may reflect a presumption on insurer's part that the restaurant
would remain vacant. It does not, however, unambiguously provide that
coverage will end upon the reopening of the restaurant. At most, the
policy is ambiguous as to whether property coverage would continue when the
restaurant opened. It virtually needs no citation to say that ambiguities
in insurance policies are to be construed against the insurer, who created
them. Sanders, 148 Vt. at 500, 536 A.2d at 916. The superior court's
grant of summary judgment to Ms. DeBartolo was proper.

II.

¶ 22. Lloyd's next argues that the superior court erred in finding
that Ms. DeBartolo did not conceal the restaurant's reopening. The
superior court did not explicitly so find in its initial order, but later
issued a supplemental finding stating that Ms. DeBartolo "did not conceal
from [Lloyd's] that she had reopened the restaurant." The property policy
was subject to a condition voiding the policy if Ms. DeBartolo should, "at
any time, intentionally conceal or misrepresent a material fact concerning:
(1) This Coverage Part; (2) The Covered Property; (3) [her] interest in the
Covered Property; or (4) A claim under this Coverage Part." Ms. DeBartolo
argues, in response, that the record supported the trial court's finding
and that, at worst, she was negligent in failing to alert Lloyd's that the
restaurant had reopened.

¶ 23. We review trial court findings of fact for clear error, and
will sustain them when there is any credible evidence in the record to
support them. Lawrence v. Pelletier, 154 Vt. 29, 33, 572 A.2d 936, 939
(1990). It is the province of the trial court to judge the credibility of
witnesses and the weight of evidence, Solomon v. Atlantis Dev., Inc., 147
Vt. 349, 354, 516 A.2d 132, 135 (1986), but we will set aside findings of
fact when they are wholly unsupported by any evidence. Bookstaver v. Town
of Westminster, 131 Vt. 133, 141, 300 A.2d 891, 896 (1973). As a general
matter, a finding of intentional concealment of a material fact would
require evidence of intent; "mere silence . . . is not concealment, at
least in the absence of a specific inquiry." 6 Couch on Insurance § 81:21,
at 81-36 to -37.

¶ 24. Even if the restaurant's opening were a material fact, the
superior court did not err in finding that Ms. DeBartolo did not
intentionally conceal it. Although there was also evidence arguably to the
contrary, there was credible evidence supporting the trial court's finding.
Ms. DeBartolo testified that she did not tell Lloyd's about the restaurant
opening because she "didn't think of it." She further testified that she
had only a rudimentary understanding of the impact of the restaurant's
vacancy on her insurance coverage. We will not, on appellate review,
disturb the trial court's decision to credit this testimony over the
conflicting testimony offered by insurer. See Solomon, 147 Vt. at 354, 516 A.2d at 135.

Affirmed.

BY THE COURT:

_______________________________________
Paul L. Reiber, Chief Justice

_______________________________________
John A. Dooley, Associate Justice

_______________________________________
Denise R. Johnson, Associate Justice

_______________________________________
Marilyn S. Skoglund, Associate Justice

_______________________________________
Brian L. Burgess, Associate Justice

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Footnotes

FN1. The policy also provided commercial general liability (CGL) coverage
with limits of $500,000 per occurrence and $1,000,000 in the aggregate.
Ms. DeBartolo made no claim under that coverage.

FN2. The superior court also found that neither party acted in bad faith.

FN3. Our law also provides that "contracts procured as surplus lines
insurance . . . shall be valid and enforceable to the same extent as
insurance contracts procured from admitted insurers." 8 V.S.A. § 5029.

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